Thursday, 19 May 2011

On the Political Meaning of “Cooperation”

On Tuesday, May 17th, European Commissioner Olli Rehn asked for cooperation between political parties for the targets and policies of the Memorandum, i.e. the loan conditionality which had been agreed between Greece and the Troika as a condition of the disbursement of EUR 110 billion in emergency loans to Greece.

This touched off a political firestorm. Deputy Prime Minister Theodoros Pangalos spoke of unwarranted political interference in domestic affairs. Leader of the Opposition Antonis Samaras, in a heated speech at the Zappeio, spoke of a policy which was doomed to fail, and has lost no opportunity in criticizing the government and the Memorandum, even when these contain policy measures which his party has supported in the past.

This widespread and cross-party reaction, magnified in the cynical echo chamber of the mainstream media in Greece, is unfortunately yet another indicator of the moral sickness and bankruptcy of the current political system.

Our creditors—the IMF, Eurozone and European Central Bank--have lent us EUR 110 bln based on certain conditionalities, many of which are eminently rational and should have been implemented long ago. These conditionalities include:

• The collection of tax arrears and the fight against tax evasion;
• Reduction in government expenditure, including the reduction of the public sector workforce through replacing every 5 retirees with 1 new recruit;
• A liberalisation of closed sectors such as pharmacies and road transport;
• The increase of indirect taxes, including VAT and special taxes on fuel, alcohol and tobacco;
• An increase in the retirement age and an end to the favourable early retirement system enjoyed primarily by the public sector;
• Additional fiscal consolidation and structural reforms.

None of these conditions can possibly be objectionable on the grounds of either fairness or evidence-based policies. They were arrived at after a consultation between the government and the Troika. They were all recommendations which the country should have been doing of its own initiative, and did not.

These conditionalities were accepted by the Hellenic Parliament in a fair and democratic vote, to which one other party—LAOS—and several independent or right-wing deputies voted in favour. They are now part of the law of Greece.

In certain areas, the government has decided to cut spending at its own initiative. For instance, the initiative to cut salaries and pensions above a certain level was a decision made by the government to reduce costs, not the Troika. There is no specific clause in the Memorandum which specifies this.

Let us not forget that the money offered to Greece—EUR 110 billion—is financed in the majority by the taxpayers of the Eurozone. This includes countries such as Cyprus, Slovenia, the Czech Republic, which are close allies of Greece or which have lived under Communism. It also includes countries such as Belgium, Italy, Ireland, Portugal and Spain, who are facing major economic challenges of their own.

Let us also not forget that the money is being lent to Greece for the simple reason that Greece is bankrupt. Why is this money needed? Not just to roll over existing debt, but to pay salaries in the public sector, to pay for pensions and hospitals, to pay for the aviation fuel which keeps Greece’s airforce in the air protecting our borders.

Why can’t Greece pay for its own financial commitments? Because for generations it has made outrageous commitments to the public sector workforce in exchange for votes. It has allowed its tax collection system to become a byword for corruption and incompetence. And it has colluded with the private sector in Greece and abroad to extract massive bribes and implement white elephant projects.

This situation is entirely of our own making. Starting with the first government of Andreas Papandreou, which led to massive spending and high inflation, and extending to the disastrous six years of Konstantinos Karamanlis, which increased public sector debt by EUR 150 billion, the Greek political system, with the apparent agreement of the majority of its citizen voters, has corrupted and bankrupted the country and the society.

Every single administration since 1981 has left the country in a worse financial situation than the previous one. Public debt has risen nearly every year since then in hard currency terms. Even Kostas Simitis, revered as a reformer and “technocrat”, was revealed to have “cooked the books” that permitted Greece entry into the Eurozone. “Greek statistics” has rightfully been denigrated the world over.

In the face of this stunning corruption and incompetence, which has for years included the deliberate flouting of European law in multiple sectors from education to the environment, our European partners have decided to give Greece one more chance to save itself from bankruptcy. Part of this is due to ulterior motives: saving the European banks which have extended some EUR 340 bln in loans to Greece as of the end of 2010.

But make no mistake: passing the Greek bail-out package of EUR 110 bln through the national parliaments of fourteen Eurozone parliaments during a global economic crisis require real political courage, and real sacrifice. In many of these parliaments, the vote was passed with cross-party support. What we call, in other words, “cooperation.”

Yet here in Greece, our media and political elite, to say nothing of the average citizen, appears ignorant of these facts. Instead of a sincere, truly national effort to correct the situation and implement the loan terms, our political elite finds every opportunity to score points against their domestic opponents, and against the Troika, which represents other countries who’s citizens who have had the good decency to lend Greece money when no one else would.

This “resistance” often reaches the point of pure irrationality—insanity, if you will. In what other country would people protest the privatisation of a shabby national railways system which has for years incurred losses of over EUR 500 million per year and has a debt of over EUR 10 billion, making it the most-indebted public enterprise in Europe?

Olie Rehn, Jean-Claude Juncker, Dominique Strauss-Kahn, Jean-Claude Trichet: no matter that their individual backgrounds or faults, these people have been overwhelming in their support of Greece. Any Google search done shows the support they have given in articles in the Wall Street Journal, the Financial Times, Bloomberg, Reuters, and others.

They are also charged with making sure that Greece follows the letter of the contract it agreed to. Here, it is clear that although Greece has made very courageous political choices, it has not stuck to the plan, and has not met its targets. Do not search outside Greece for a conspiracy or a culprit: this negative result is solely and unequivocally the fault of our government apparatus and our taxpayers.

Additional measures are clearly needed. Political and indeed national cooperation is clearly needed. Instead of castigating or vilifying our European partners, we would be far better off understanding the magnitude of the problem facing the country, and doing everything we can to ameliorate the situation. This would be first and foremost a reflection the “European” value we all aspire to.

4 comments:

Alexis Papahelas, editor of Kathimerini, has published an excellent opinion piece on an alternative vision for cooperation to what is currently the norm. It's in Greek, and worth a read. Thanks to Eri Coroneou for this.

Only yesterday, a cousin of a friend of mine complained that she has not yet been granted tenure in her Civil Service job, and that in any case her wage is too low.

When I asked her why she did not look for a job elsewhere, I expected her to answer that she didn't think she'd be able to find one, which would probably be true.

Instead she got angry and informed me that "all" she is looking for is a well paid job that won't tire her! I thought she was joking and laughed. I was then subjected to a tirade of insults, and I was informed that we in the private sector have it easy, living off the labour of the civil service!!

The shocking thing is that she really believes this, and so do the majority of my fellow Greeks. There is no hope for this country, none at all.

Despite the government's prominent incompetence the whole economic model on which the memorandum was based is outdated and after a year of(let's say..half implementation)has led to unprecedented stagnation. You cannot add taxes and all kinds of austerity measures on an economy which suffers the worst recession rates in its history. For that matter, I think that the critisism against the leader of the main opposition party is unfair. Samaras was very clear from the first moment. You cannot deal with a growing public deficit, slashing the GDP with austeriry measures. And on the same time how do we expect to reduce the public debt without creating conditions for economic development. Samaras is explicit on that. And at the same time, at the Zappeion he took much more liberal and decisive position on the privatizations case. Actually he is urging the government to speed up. We shouldnt fool our selves. The problem is that the Greek prime minister is totally incapable in coordinating his government. And at the same time he has no idea of public economics, which is not the same as...running the bicycle. The European partners have become edgy because they realized Papandreou's total ignorance. Finally I have to argue that EE's financial support to Greece is not given for free. It is a loan provided under strict terms and under a interest rate which cannot be consided a friendly gesture...

I’m sorry for the delay in posting and responding to your post George. Blogger classified your comment as spam, and I only just found it.

From my viewpoint, the attempt to raise and collect taxes is the correct one. While this is against standard Keynesian economics, Greece is not a Keynesian case. There is far too much black money, in Greece and abroad. The attempt to raise the tax-free exemption to EUR 12,000/family has, for the most part (for the average family) offset the impact of higher VAT and fuel prices.

However, this may change with the newest measures, where that exemption may fall to EUR 8,000, and the cost of heating fuel will be equalised with that of motor fuel. These two measures will hurt.

On the other hand, it’s also true that most families, and particularly those of the middle class (and certainly the upper class) are not paying anywhere near their fair tax assessment. This applies to income tax reporting as well as to the real estate asset taxes.

I do believe that some taxes should be cut, and I’ve put forward some proposals here:

Regarding the recession itself: I believe that the causes of this recession are multiple, and include:

- Lower public spending- The work-out of public and private sector debt, and the related end of credit expansion- Ripple effects from the recession or downturn in source markets such as the UK and Germany (for tourism) and the wider global recession (for shipping)- The closure of very many small, uncompetitive Greek enterprises.

Given the reasons, I don’t believe higher public spending is the way to go. We should take the opportunity of this crisis to implement as many meaningful reforms as we can, backing them up with an aggressive private sector growth plan, where I believe we agree.

Regarding Mr. Samaras: it is impossible that until now there has been no detailed plan with an accompanying forecast. It is also unacceptable that he maintains one line in his dialogue with European partners, and another at home. I can’t say I blame him: PASOK followed the same tactics for years, and is doing this today as well.

I agree broadly with your assessment of the Prime Minister: much better performance is needed. However, we as a country have taken on a legal obligation, and it’s up to all of us to try to fulfil it. That is, after all, what Socrates taught us so long ago.

Extraordinary times call for extraordinary measures. We are all aware of the deep corruption and mismanagement in both ND and PASOK. Is this the time for politics as usual, or should we indeed come together and craft some common-sense solutions? I doubt it’s possible, given the dynamics of Greek party politics over the past 30 years. But our European creditors are 100% correct in insisting on it.

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